(Editor’s Note: The California Chamber of Commerce is the highly respected advocacy voice for common sense business perspectives on regulation and legislation that can affect all Californians and the state’s economy.
We encourage you to review the following Chamber letter to Members of the California Assembly. The letter clearly outlines the issues with AB 1400 and its companion ACA 11 funding bill. We think the facts and arguments presented by the Chamber will help you better understand and be able to discuss the Single Payer issues facing all Californians should AB 1400 and ACA 11 go into effect.
The letter includes the names and logos of many of the state’s leading health plans, associations , local chambers, and others who signed on to the Chamber’s thoughtful and insightful letter.
Jessica Word, President of the Word & Brown General Agency, is a Board member of the California Chamber of Commerce, and leads our company’s support of the Chamber’s activities.)
January 19, 2022
To: Members, Assembly Appropriations Committee
SUBJECT: JOINT OPPOSITION TO AB 1400 (KALRA, LEE AND SANTIAGO) GUARANTEED HEALTH CARE FOR ALL – AS INTRODUCED FEBRUARY 19, 2021 – SCHEDULED FOR HEARING – JANUARY 20, 2022
ACA 11 (KALRA AND LEE) TAXES TO FUND HEALTH CARE COVERAGE AND COST CONTROL – AS INTRODUCED JANUARY 5, 2022
The California Chamber of Commerce and the below listed organizations are OPPOSED to AB 1400 (Kalra, Lee, and Santiago) as amended on January 24, 2022, and ACA 11 (Kalra and Lee) as introduced on January 5, 2022, as JOB KILLERS, as the bills would create a new and exorbitantly expensive government bureaucracy, which would control and finance a state-run health care system (CalCare), ultimately resulting in significant job loss to California. Similar proposals in the past have been estimated to annually cost more than $400 billion (see SB 562 (Lara), 2017 Senate Floor analysis), which is a financial commitment four times that of Medi-Cal. Successfully standing up a new function that would be twice the size of the existing state budget is highly doubtful, given the state’s recent experience with benefit delays and massive fraud in the unemployment system. The crippling tax increases required to pay for this massive new bureaucracy could be as much as $200 billion annually and would be increased in the future by a simple majority of the Legislature.
Single-Payer Health Care is Not Free Health Care – Employers Cannot Sustain an Added Tax Burden
Single-payer health care must not be confused with free health care – there’s nothing free about a government run health plan. AB 1400’s new companion bill, ACA 11, proposes increasing Californians’ taxes hundreds of billions of dollars to fund the government run health care system. Proponents have indicated the taxes will generate $160 to $170 billion annually. This proposal would be the biggest tax increase in state history and punish Californians by increasing personal income taxes, payroll taxes, and gross receipts taxes. This enormous tax increase would occur at a time when California is experiencing a $31 billion surplus – a surplus that pales in comparison to the annual expenditures a government run health system would demand.
According to SB 562’s analysis (Id.), a single-payer proposal in California was estimated to cost more than $400 billion. In 2008, the LAO analyzed the cost of a single-payer system in California and concluded that over $210 billion would be needed in the first year to sustain such a system and would increase up to $250 billion in subsequent years. Even with a 12% payroll tax paid both by employers and employees under that measure, the report predicted a net shortfall of $42 billion in its first full year of implementation and even higher thereafter. Just to cover the shortfall, a 16% tax on employers and employees was estimated by the LAO, resulting in a multi-billion-dollar-tax increase on Californians. No doubt, the $160-$170 billion tax baseline contained within ACA 11 will be increased annually along with annual health expenditure increases.
Vermont attempted to enact a single payer system in 2011 but the efforts were derailed in 2014 when the Legislature failed to approve an accompanying 11.5% payroll tax on all employers and an individual income tax increase of up to 9.5%. Vermont’s plan would have doubled the state budget and Governor Shumlin said the burden would have posed “a risk of economic shock.” When asked about the failed single-payer effort, Governor Shumlin said, “What I learned the hard way, is it isn’t just about reforming the broken payment system. Public financing will not work until you get costs under control.”
The kinds of tax increases needed to finance AB 1400 would detrimentally impact California businesses and certainly discourage companies from growing or relocating here. It would likely lead to significant layoffs or relocations as existing business and employers would be forced to cut costs to sustain the added new tax burden.
ACA 11 Will Harm Struggling Small Businesses and the Self Employed
If ACA 11 were enacted California’s top personal income tax rate for individuals and sole proprietors –already the highest in the country – would increase by 2.5%. Additionally, ACA 11 would implement a payroll tax of 1% of the aggregate amount of wages or other compensation paid by the employer to resident employees in excess of $49,900. It would also implement a 1.25% payroll tax on the aggregate amount of wages or other compensation paid by an employer to resident employees for employers with 50 or more employees.
California ranks 49th on the Tax Foundation’s 2021 State Business Tax Climate Index. California already has the highest income tax rate in the country while Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not impose any income tax. In 2018, the top 5% of earners paid 67.2% of the state’s personal income taxes. The taxpayers who makeup this bracket will likely have a long, thoughtful pause as to where they intend to reside and conduct business should ACA 11 become the law. Losing any of these taxpayers and the revenue they contribute to the state could harm California’s General Fund and force ACA 11’s tax rates to increase to offset the loss.
In addition to having the country’s highest personal income tax rate, California also has the highest sales tax rate and gas tax rate in the United States. Our corporate tax rate of 8.84% is the highest in the Western United States. California’s business and resident exodus is real, and the mere introduction of this bill will likely drive away those who contribute the largest amounts to our state’s General Fund. Thus, ACA 11 will plausibly achieve the exact opposite of its stated intention and drive the state’s money away rather than funding a government run health care system.
A Gross Receipts Tax Will Cripple Certain Employers
ACA 11’s gross receipts tax will be extremely harmful to small employers, especially startups and those attempting to recover from the pandemic. The 2.3% tax on gross receipts over $2 million proposed in CA 11 could potentially exceed profits for certain low margin sectors. Additionally, new and emerging employers may experience a situation where their expenses exceed revenue, but they would still be subject to the gross receipts tax.
ACA 11 is an Attack on Low and Middle-Income Californians
While the payroll taxes in ACA 11 are aimed at employers, this sort of tax is shouldered by all taxpayers. Californians earning $49,900 or more would experience double-digit marginal tax rates under ACA 11. This is unconscionable at any time, but especially now when Californians are trying to survive a pandemic and deal with astronomical inflation, housing unaffordability, and outrageous gas prices.
The Tax Increases Will Likely Exceed Current Health Care Spending
It is indisputable the potential tax revenue ACA 11 will produce will be in the hundreds of billions of dollars. SB 562’s prior analysis anticipated $200 billion could be available through federal, state, and local funding and the state would need at least an additional $200 billion annually from taxpayers to fund a single payer system.
California employers and employees spent $144 billion on health care in 2019. $27 billion was spent by employees on premiums while $100 billion was spent by employers on premiums. The 2020 Kaiser Family Foundation Employer Health Benefits Survey indicated that, for job-based coverage, the average annual premium for single coverage rose 4%, to $7,470. The average annual premium for family coverage also rose 4%, to $21,342, which is nearly one-third of the state’s median family income. While these facts and figures are concerning, ACA 11’s tax revenue will likely eclipse these expenses year after year for the sake of creating affordable health care. In other words, the health care affordability problem will simply morph into a tax affordability problem.
ACA 11 Seeks to Lower the Legislative Tax Increase Vote Threshold to a Simple Majority
ACA 11 would authorize the Legislature to increase the bill’s tax rates by a simple majority vote if an economic analysis determined the CalCare fund had insufficient amounts.
As stated above, Vermont discovered public financing would not work until health care costs were under control. California’s employers experience increased premiums year after year because of increasing health care costs. When analyzing ACA 11 it becomes abundantly clear that the proposed tax rates will annually increase to keep up with health care cost demands. Obligating taxpayers to pay higher taxes is a tremendous responsibility and one that will lose its safeguard if the 2/3 voting threshold is disregarded.
Government Run Health Care is Less Efficient and Less Effective
The goal to provide health coverage for all Californians is laudable but establishing a state health care bureaucracy is the wrong approach. We fundamentally disagree that government systems are more efficient than private businesses and that a single-payer system would be less costly than the current private system.
AB 1400 will reduce the level and quality of health care and benefits currently enjoyed by millions of Californians. It will lead to increasingly long wait times to see a physician and will take away choice. Not just choice in physicians but choice in coverage. Under current law, those who wish to buy more, less or different coverage than others can often make those choices, just as those who have other priorities can exercise them in the market. Under AB 1400 one size fits all, no matter what an individual’s preference might be.
Californians Have Rejected Government Run Health Care
California voters have twice rejected a government-run health care system at the ballot box – in 1994 and 2004. Additionally, CalChamber conducted a poll in 2018 which found that voters overwhelmingly preferred to keep their current health insurance (78%) over switching to a single-payer approach (22%). Voters strongly support subsidies for people who cannot afford their own health care (75%) and for those who have pre-existing health conditions (81%) but were not ready to embrace government-run health care.
Universal Health Care Coverage is Nearly a Reality in California
Approximately 94% of Californians have health care coverage in some fashion. A majority of the uninsured population is comprised of undocumented individuals. Governor Newsom’s 2022-2023 Budget addresses this very issue and would make California the first state to offer health care coverage for all income-eligible residents regardless of immigration status.
California has made significant progress in providing health care coverage to its residents and while CalChamber shares your concerns in further increasing access to, and affordability of, healthcare, we do not believe that a government run single-payer health care system will achieve these goals.
For these and other reasons, we OPPOSE AB 1400 (Kalra, Lee, and Santiago) and ACA 11 (Kalra and Lee) as JOB KILLERS.
on behalf of:
Acclamation Insurance Management Services
African American Farmers of California
Agricultural Council of California
Alameda Chamber of Commerce
Allied Managed Care
American Composites Manufacturers Association
American Pistachio Growers
American Property Casualty Insurance Association
Antelope Valley Chamber of Commerce
Associated General Contractors
Bay Area Council
Blue Shield of California
Brea Chamber of Commerce
Building Owners and Managers Association
California Agricultural Aircraft Association
California Apple Commission
California Asian Pacific Chamber of Commerce
California Association of Winegrape Growers
California Attractions and Parks Association
California Beer and Beverage Distributors
California Blueberry Association
California Blueberry Commission
California Builders Alliance
California Building Industry Association
California Business Properties Association
California Business Roundtable
California Cable & Telecommunications Association
California Cattlemen’s Association
California Chamber of Commerce
California Children’s Hospital Association
California Cotton Ginners and Growers Association
California Financial Services Association
California Fresh Fruit Association
California Fuels and Convenience Alliance
California Independent Petroleum Association
California Land Title Association
California League of Food Producers
California Lodging Industry Association
California Manufacturers & Technology Association
California New Car Dealers Association
California Pool and Spa Association
California Retailers Association
California Rice Commission
California Strawberry Commission
California Taxpayers Association
California Walnut Commission
California Women for Agriculture
Can Manufacturers Institute
Carlsbad Chamber of Commerce
Cemetery and Mortuary Association of California
Chino Valley Chamber of Commerce
Coalition of Small and Disabled Veteran Businesses
Construction Employers’ Association
Corona Chamber of Commerce
Danville Area Chamber of Commerce
El Dorado County Chamber of Commerce
El Dorado Hills Chamber of Commerce
Elk Grove Chamber of Commerce
Family Business Association of California
Flasher Barricade Association
Folsom Chamber of Commerce
Fountain Valley Chamber of Commerce
Fresno Chamber of Commerce
Gateway Chambers Alliance
Gilroy Chamber of Commerce
Greater Coachella Valley Chamber of Commerce
Greater Conejo Valley Chamber of Commerce
Greater Grass Valley Chamber of Commerce
Greater High Desert Chamber of Commerce
Greater Riverside Chambers of Commerce
Greater Stockton Chamber of Commerce
Hollywood Chamber of Commerce
Housing Contractors of California
Independent Lodging Industry Association
Innovating Commerce Serving Communities
La Cañada Flintridge Chamber of Commerce and Community Association
Laguna Niguel Chamber of Commerce
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
Mammoth Lakes Chamber of Commerce
Manhattan Beach Chamber of Commerce
Manteca Chamber of Commerce
Metal Finishing Association of Northern California
Metal Finishing Association of Southern California
Mission Viejo Chamber of Commerce
Murrieta/Wildomar Chamber of Commerce
National Electrical Contractors
National Federation of Independent Business
Newport Beach Chamber of Commerce
Nisei Farmers League
North San Diego Business Chamber
Norwalk Chamber of Commerce
Oceanside Chamber of Commerce
Olive Growers Council of California
Orange County Business Council
Pleasanton Chamber of Commerce
Rancho Cordova Area Chamber of Commerce
Roseville Area Chamber of Commerce
Sacramento Black Chamber of Commerce
Sacramento Regional Builders Exchange
San Diego Regional Chamber of Commerce
San Mateo Area Chamber of Commerce
San Ramon Chamber of Commerce
Santa Ana Chamber of Commerce
Santa Maria Valley Chamber of Commerce
Silicon Valley Leadership Group
Simi Valley Chamber of Commerce
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
Torrance Area Chamber of Commerce
Tulare Chamber of Commerce
Tulare Lake Basin Water Storage District
United Chamber Advocacy Network
Vacaville Chamber of Commerce
Ventura Chamber of Commerce
Walnut Creek Chamber of Commerce & Visitors Bureau
West Coast Lumber & Building Material Association
West Hollywood Chamber of Commerce
Western Agricultural Processors Association
Western Growers Association
Western Manufactured Housing Communities Association
Western Plant Health Association
Whittier Chamber of Commerce
Word & Brown
Yuba Sutter Chamber of Commerce